Rising development and marketing costs are definitely biting into the pie, no doubt. But there are two reasons for some (guarded) hope in this segment. First is the push for "mid-tier" games, which as mentioned above helps maximize return from a restricted audience.

Second, I believe the perception of the market is miscolored by last gen. The argument for impending crash or stagnation goes something like this, "Last gen Sony blew nearly the previous decade's worth of profits, and Microsoft bled copious red ink before effecting a minor turnaround with Kinect. Studios closed left and right, or teetered on the precipice, due to the risk of AAA development. If games now cost even more to make, how is anyone going to survive?"

But the losses of the HD twins last gen were arguably not due to embracing the blockbuster-movie model. Microsoft spent literally billions on their hardware failures; Sony spent literally billions to subsidize hardware that was preposterously overengineered. Neither of those mistakes will be in play this time. And that could mean increased safety--not just for the platform holders, but for third parties too. There will potentially be far more dollars available for devkit lending, co-marketing, exclusivity deals, and "second-party" contract work. The market could stagnate in size and still rise immensely in profitability.

Yes. The simplest definition of value is what you'd pay for something. Note that I'm not saying that every player of PC and mobile F2P games is setting a zero value on the game. (After all, the business model relies on a very few people setting an immensely high value on it!) There will be a certain number of players who'd pony up if the game suddenly had an entry fee; they're only paying nothing because no one has asked them to pay more. However, at least some proportion--I'd expect a large proportion--of the interest is solely because of the price. Otherwise Steam sales wouldn't be the feeding frenzies they are, and the Google Play store wouldn't be overrun with free everything.

And as an aside, note which types of software are more successful at higher prices on Steam, iOS, and the like: comparatively high-budget, more traditionally structured games such as DayZ,Counter-Strike, Infinity Blade, or School Girl Strikers. If this approach can be profitable there, why not pursue them in the "outdated" console model, where you also get hardware lock-in?

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Rising development and marketing costs are definitely biting into the pie, no doubt. But there are two reasons for some (guarded) hope in this segment. First is the push for "mid-tier" games, which as mentioned above helps maximize return from a restricted audience.

Second, I believe the perception of the market is miscolored by last gen. The argument for impending crash or stagnation goes something like this, "Last gen Sony blew nearly the previous decade's worth of profits, and Microsoft bled copious red ink before effecting a minor turnaround with Kinect. Studios closed left and right, or teetered on the precipice, due to the risk of AAA development. If games now cost even more to make, how is anyone going to survive?"

But the losses of the HD twins last gen were arguably not due to embracing the blockbuster-movie model. Microsoft spent literally billions on their hardware failures; Sony spent literally billions to subsidize hardware that was preposterously overengineered. Neither of those mistakes will be in play this time. And that could mean increased safety--not just for the platform holders, but for third parties too. There will potentially be far more dollars available for devkit lending, co-marketing, exclusivity deals, and "second-party" contract work. The market could stagnate in size and still rise immensely in profitability.

You can also look at the PS2 generation and see very thin profit margins; that suggests this model only works well if everything comes together perfectly.

There is no evidence mid-tier games are returning to consoles, and significant evidence that software contraction is continuing unabated (that is, release lists continue to shrink). The best hope for a revenue balance, in my opinion, is the strategy software publishers are employing right now: extract more and more money from your existing customers. This strategy can certainly help, although I think it presents long term problems.

Yes. The simplest definition of value is what you'd pay for something. Note that I'm not saying that every player of PC and mobile F2P games is setting a zero value on the game. (After all, the business model relies on a very few people setting an immensely high value on it!) There will be a certain number of players who'd pony up if the game suddenly had an entry fee; they're only paying nothing because no one has asked them to pay more. However, at least some proportion--I'd expect a large proportion--of the interest is solely because of the price. Otherwise Steam sales wouldn't be the feeding frenzies they are, and the Google Play store wouldn't be overrun with free everything.

That's a good method of deriving value, although that would also that could lead to paradoxical conclusions like Chess professionals not caring about gaming just because they aren't paying (and in some cases never paid) to play Chess. In other words, I think the model you are describing breaks down at the extremes -- as most economic models do -- and F2P is an extreme.

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You can also look at the PS2 generation and see very thin profit margins; that suggests this model only works well if everything comes together perfectly.

There is no evidence mid-tier games are returning to consoles, and significant evidence that software contraction is continuing unabated (that is, release lists continue to shrink). The best hope for a revenue balance, in my opinion, is the strategy software publishers are employing right now: extract more and more money from your existing customers. This strategy can certainly help, although I think it presents long term problems.

Comparing the console market to the mobile market again... Aren't there also thin profit margins from mobile hardware unless you are the top dogs in mobile like Apple and Samsung?

The very F2P model that mobile games depend on also rely on a ridiculously small subset of mobile gamers... the so-called whales who could be compared to the hardcore console gamer in regards to their spending habits. Both the mobile whales and the hardcore console gamer buy as much as they can in regards to digital content for their games with mobile whales loving microtransactions and the hardcore console gamer buying all the DLC of a game Day 1. Both are a small subset of everyone who actually games, but are also the core base which makes the most money for companies as far as their respective platforms are concerned.

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Comparing the console market to the mobile market again... Aren't there also thin profit margins from mobile hardware unless you are the top dogs in mobile like Apple and Samsung?

The very F2P model that mobile games depend on also rely on a ridiculously small subset of mobile gamers... the so-called whales who could be compared to the hardcore console gamer in regards to their spending habits. Both the mobile whales and the hardcore console gamer buy as much as they can in regards to digital content for their games with mobile whales loving microtransactions and the hardcore console gamer buying all the DLC of a game Day 1. Both are a small subset of everyone who actually games, but are also the core base which makes the most money for companies as far as their respective platforms are concerned.

They aren't really comparable as 1% of a console game's audience is not responsible for > 50% of the revenue, which is the case for f2p games. Although maybe that is true with some EA games that have gambling mechanics with no ceiling on how much a player can spend like ME3 multiplayer, Fifa, and Madden.

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They aren't really comparable as 1% of a console game's audience is not responsible for > 50% of the revenue, which is the case for f2p games. Although maybe that is true with some EA games that have gambling mechanics with no ceiling on how much a player can spend like ME3 multiplayer, Fifa, and Madden.

Why aren't they comparable in regards to the strategy I was commenting specifically on? Namely, extracting more and more money from your existing customers. That 1% you talk about are the mobile gaming industry's existing customers since they are 50% of the revenue. As such, mobile developers attempt to cater to that 1% in lieu of the 99% that represents everyone else.

Oh of course. I meant a Nintendo employee operating without getting permission from higher on the Nintendo chain of authority. I have difficulty imagining the same executive that ensures not too much information is revealed in any given NPD PR statement is just going to give the okay on all that data for the unity conference

Guy was funny with the demographic breakdown. "Most Wii U owners are 18-34 yr. old males, so if you're making a game for Steam, PSN, etc. in Unity, there's no excuse not to bring it to the eShop." :lol Workin' those fields to bring in new game crops!

Oh of course. I meant a Nintendo employee operating without getting permission from higher on the Nintendo chain of authority. I have difficulty imagining the same executive that ensures not too much information is revealed in any given NPD PR statement is just going to give the okay on all that data for the unity conference

Oh, Nintendo has never had a problem sharing information. They've given out tons of data over the years. The catch is that it needs to be positive information. The Wii U sales increase is positive, even if it requires the reveal of the previously not mentioned sales from last year in order to show that it's positive now.

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Oh of course. I meant a Nintendo employee operating without getting permission from higher on the Nintendo chain of authority. I have difficulty imagining the same executive that ensures not too much information is revealed in any given NPD PR statement is just going to give the okay on all that data for the unity conference

Yeah saw that. Disappointing really. I bet 3DS has the best demographic breakdown of any active console at the moment

I assume that base actually has to do with who actually registers the account. If you have kids, the person on the account is likely a parent. If it's the dad, then you have them falling under the older male demographic. As such, I'm not sure how accurate those demographics are in terms of who's actually playing the console.

They'd have to go through some hoops for the parents to authorize it, yes. 13 and above doesn't require those hoops, and we still have a really low % there, though. Seems pretty clear that, even if these numbers under-represent the truth, Nintendo doesn't have as many kids playing their home console as in years past.

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Also, the guy presenting was a senior marketing manager at NoA. I personally think he would have gotten approval before presenting something like that. Either that, or the deck was made by a lower level person, but he just had to run with it in the presentation.

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I realized it was eshop, but considering how the number of kids that must make up the Wii U userbase, they are missing out on a lot of revenue. I'm guessing they do count the kids who get their parents to buy for them?

Also considering how many kids have smart devices these days, a number that low seems strange. Knowing the tie ratio for that age group would be interesting.

That's how I read the numbers as far as when someone began gaming ie first console. It's no surprise that Nintendo's hardcore fans would be older(60% 25+), and lets face it, that's who mostly owns a Wii U right now is hardcoe Nintendo fans.

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I hope you guys realize that the age numbers wouldn't look that much better even if expanded to all users (because a pretty decent chunk of the non-eShop people are older too), and that definitely can't explain the massive gender gap.

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Also, the guy presenting was a senior marketing manager at NoA. I personally think he would have gotten approval before presenting something like that. Either that, or the deck was made by a lower level person, but he just had to run with it in the presentation.